As a general rule, the most successful man in life is the man who has the best information

The truth, in regards to the world’s mineral resources, is that we in the western developed countries are not in control of supply. The map below was posted on reddit.com. While interesting it does not reveal the enormity facing the western world in regards to Security of Supply for many of our key minerals.

“The spectre of resource insecurity has come back with a vengeance. The world is undergoing a period of intensified resource stress, driven in part by the scale and speed of demand growth from emerging economies and a decade of tight commodity markets. Poorly designed and short-sighted policies are also making things worse, not better. Whether or not resources are actually running out, the outlook is one of supply disruptions, volatile prices, accelerated environmental degradation and rising political tensions over resource access.” Chatham House, Resources Futures

There are many serious concerns in regards to global resource extraction that we need to consider:

Resource nationalism/country risk, political instability of supplier

A looming skills shortage

Competition with Chinese mining investment, smaller areas open for exploration

Low hanging fruit — the high quality large deposits have already been found, lower economic attractiveness of new projects, cost inflation

Supply bottlenecks for much needed and scarce equipment

The manipulation of supplies i.e., speculation and concentrated ownership of LME stocks

Let’s take a hard look at Costs, some examples of growing resource nationalism and civil unrest directed toward mining and lastly population growth & urbanization.

Costs

Mining is an extremely capital intensive business for two reasons. Firstly, mining has a large, up front layout of construction capital called Capex — the costs associated with the development and construction of open-pit and underground mines. There are often other company built infrastructure assets like roads, railways, bridges, power generating stations and seaports to facilitate extraction and shipping of ore and concentrate. Secondly, there is a continuously rising Opex, or operational expenditures. These are the day to day costs of operation; rubber tires, wages, fuel, camp costs for employees etc.

Copper mining has become an especially capital intensive industry — the average capital intensity for a new copper mine in 2000 was between US$4,000 – $5,000 to build the capacity to produce a tonne of copper, now capital intensity is north of $10,000/t, on average, for new projects.

The same trends are also evident for new nickel mines, where capital intensity has gone through the roof:

Capital costs on a per pound basis escalating rapidly over the last decade
The discrepancy between the initial per pound capital cost of nickel projects, and the ultimate construction costs, are over 50%